Are you ready to transform your long-cherished dream into a thriving, real-world organization?
Whether you’re launching an online app that invites subscribers or setting up a brick-and-mortar establishment with physical offices or retail spaces, there’s a critical aspect that demands your attention: Regulatory Compliance.
Admittedly, it may not be the most exciting part of the entrepreneurial journey. While you’re itching to dive into the heart of your business, these compliance requirements can feel like pesky distractions. However, they are the essential foundation upon which your dream can become a sustainable reality. In this guide, we’ll help you navigate the intricate landscape of regulatory compliances, ensuring you can pursue your entrepreneurial vision with confidence.
The Compliance Roadmap for Indian Startups
Right from deciding the optimal legal structure of your organization to hiring and reimbursing
employees, and even adhering to environmental regulations, you cannot afford to overlook any of the mandatory regulatory compliances, lest you attract fines, penalties, or even legal implications.
Here is a comprehensive roadmap you can use to navigate these turbulent waters, till you have established your business successfully.
- Choosing the Right Legal Structure
The selection of the right business structure lays the foundation for your startup’s journey in India’s dynamic business landscape, each structure has its own advantages and disadvantages.
The legal structure is usually based on the number of stakeholders and how much personal risk they are willing to take, residential status, funding available, and tax implications. The common legal structures in India are:
Sole Proprietorship – Suitable for small businesses with a single owner. This is relatively easy to set up with minimal compliance, but there is more personal liability and limitations to capital available.
Partnership Firm – Suitable for businesses with multiple stakeholders who want to share profits and losses. There is shared responsibility, but chances of potential conflicts between partners.
Limited Liability Partnership (LLP) – Suitable for small and medium-sized businesses. There is limited personal liability for partners, but more compliance requirements compared to the previous legal structures.
Private Limited Company – Suitable for growing startups and large businesses seeking investments. There is limited liability for stakeholders, easy transfer of ownership, and easy access to funding. However, the organization structure is more complicated, with more regulatory compliance.
Public Limited Company – Suitable for large businesses planning to go public. The major advantage is access to public capital, which also brings with it public scrutiny and very stringent regulatory compliance.
- Business Registration
Companies need to be registered with the Registrar of Companies in accordance with The Companies Act, 2013, and the Limited Liability Partnership (LLP) Act, 2008. All directors are required to have Digital Signature Certificates (DSC), which can be acquired from certified authorities through online applications.
SPICe+ form(Simplified Proforma for Incorporating Company electronically Plus) has to be used for obtaining Director Identification Number (DIN) and for company registration on the MCA portal.
The SPICe+ form is also used to apply for company names. Submit 1 or 2 names using Part-A of the form. If they are rejected more names can be submitted, most approvals taking less than 5 days. Memorandum and Articles of Association (MOA and AOA) should also be submitted while applying for company registration.
Once the registration process is completed, you will get a Certificate of Incorporation.
- Income Tax Registration
All organizations need to obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for income tax compliance. Register on the Income tax portal with PAN number, Digital Signature Certificate, Company name,
Date of incorporation, Type of company, CIN (Corporate Identification Number) obtained during company registration, and contact details of the Primary Contact within the organization.
- GST Registration
GST registration can be done on the GST portal [link to https://www.gst.gov.in/] on Form REG-01 with all relevant documents for company formation.
GST registration is mandatory for all firms. The threshold for mandatory registration is an annual turnover of more than 40 lakhs for goods and 20 lakhs for services. This threshold can vary over time based on GST Council decisions and amendments to GST laws. It’s advisable to check the latest threshold applicable at the time of registration. Once the registration is completed, you will be issued a GST registration certificate.
- Intellectual Property Protection
Intellectual Property includes products, services, or ideas that are developed and owned by your organization, and those need to be protected under Patents Act of 1970, the Trademarks Act of 1999, and the Copyright Act of 1957. Identify and protect your startup’s intellectual property assets through the filing of patents, trademarks, and copyrights.
The organization is bound to conduct extensive research on the originality of the product, service, design, or idea before filing an application with the Office of the Controller General of Patents, Designs, and Trade Marks. The applications go through a detailed examination process, publication, and response to objections before a patent, copyright, or trademark is granted.
- Labour and Employment Laws
Hiring, reimbursing, and maintaining employees are governed by The Minimum Wages Act of 1948, the Employees’ Provident Funds and Miscellaneous Provisions Act of 1952, and the Employees’ State Insurance Act of 1948. Different labour laws govern the terms and conditions of employment, minimum wages to be paid, percentage of contributions to PF and ESI, pension, gratuity, and so on.
The employee’s contribution to EPF (Employee Provident Fund) is typically 12% of their basic salary. The employer should also contribute the same percentage as the employee towards EPF and this is credited to the EPF account of the employee every month. The ESI contribution from the employee is 0.75% of their gross income, while the employer’s contribution is 3.75% of the gross income.
- Data Protection Policies
Most organizations collect personally identifiable information (PII) or confidential information from customers. It is crucial that this information is protected and utilized with complete data security, according to GDPR (General Data Protection Regulation) and CCPA(Central Consumer Protection Authority) regulations.
- Funding and Investments
India has established specific FDI (Foreign Direct Investment) regulations to govern the entry and operation of foreign investments in various sectors of the economy. These regulations are often updated to promote ease of doing business and attract foreign capital. The Department for Promotion of Industry and Internal Trade (DPIIT) and the Reserve Bank of India (RBI) oversee and regulate FDI in India.
SEBI (Securities and Exchange Board of India) regulates various aspects of fundraising, including initial public offerings (IPOs), rights issues, private placements, and the trading of securities on stock exchanges. SEBI’s role is to protect investors, ensure market transparency, and maintain the integrity of the securities market.
- Environmental Compliance
Under the Environment Protection Act of 1986, organizations are required to take proactive steps towards reducing emissions, recycling and reusing materials, conserving water and energy, and using renewable energy.
This act mandates that businesses with any impact on the environment with their activities have to get necessary licenses and permits from state and central governments like the State and Central Pollution Control Boards; the Ministry of Environment, Forest and Climate Change (MoEFCC) under various acts relevant to specific industries.
The specific licenses and permits required can vary depending on the type of industry and environmental impact. Start-ups should consult with relevant environmental authorities to determine their specific compliance obligations.
- Compliances post Incorporation
– First board meeting – This has to be convened within 30 days of incorporation of the
organization, after it is scheduled and intimated to the directors.
– Registered office and Nameboard – The company should have a registered office with a name board having the company name, CIN (Corporate Identification Number), address, and phone number mentioned clearly.
– Financial Records – There are several financial records to be kept by organizations
like the Balance sheet, profit and loss statements, accounts receivable records, accounts
payable records, inventory records, cash flow statements, employee records, and so on.
– Income tax returns – Advance tax has to be paid in 4 installments on 15th June, 15th
September, 15th December, and 15th March in addition to yearly income tax filing by 31st July every year. Records of income tax payments should be retained by organizations for a minimum period of 7 years.
How to make compliance easy
It is essential to create a compliance calendar that outlines compliance deadlines and
responsibilities. Assigning specific individuals or teams to oversee compliance tasks is crucial for accountability. These individuals, often referred to as compliance officers or managers, will be responsible for tracking deadlines, ensuring that the necessary actions are taken, and for maintaining compliance records.
Regular reviews of your compliance efforts by senior management is essential for staying ahead of regulatory changes and ensuring that your organization is consistently compliant. Annual Compliance reports can be created to provide a condensed overview of all compliance activities undertaken during the year. They should highlight accomplishments, areas of concern, and any instances of non-compliance.
Finavi CFO can help you stay ahead of regulatory compliances, by partnering with your organization right from incorporation. With over 15 years of experience in financial services, we offer a range of services from Business incorporation, Financial planning, Financial analysis, Investment advisory, and Virtual CFO services.
Key Reasons Why Compliance Matters for Start-ups
Legal Obligations – Compliance ensures that your startup adheres to the laws and regulations governing your industry and business activities, safeguarding you from legal repercussions.
Investor Confidence – Investors, both domestic and foreign, are more likely to invest in startups that demonstrate a commitment to compliance. It instills trust and confidence in your venture’s governance.
Business Sustainability – Compliance helps in building a solid foundation for your startup, reducing risks, and enhancing long-term sustainability.
Market Reputation – Maintaining compliance fosters a positive reputation in the market, which can be a valuable asset in attracting customers, partners, and employees.
Access to Funding – Many government and private sector initiatives offer financial incentives and grants to startups that adhere to specific compliance requirements.
Navigating the compliance roadmap for startups in India is a multifaceted and ongoing process. By proactively addressing regulatory requirements and adhering to ethical business practices, startups can build a strong foundation for growth and success. Remember that compliance is not merely a legal obligation; it is a strategic imperative that can attract investors, enhance your market reputation, and ensure long-term sustainability.
Stay informed, seek professional guidance when needed, and prioritize compliance as an integral part of your startup’s journey in the dynamic Indian business landscape.
Please reach out to Finavi CFO if you need any guidance in Business Incorporation or Regulatory compliance. With over 15 years of experience in helping startups build their business profitably, we can assist you with all aspects of your financial functions.